Germany: First Privacy Shield Guidelines For Companies Published By German DPA

Authored by Christian Schroder, Sophie Ratzke, Aravind Swaminathan, Antony P. Kim, and Sam Castic.

On September 12, 2016, the Data Protection Authority of the German Federal State of North Rhine-Westphalia ("DPA NRW") became one of the first EU data protection authorities to issue guidance on the implementation of the Privacy Shield. Although the guidance is primarily directed at German companies that engage U.S. providers (any third party service providers), U.S. providers should understand the guidance to better understand what German and EU customers may ask of them in addition to EU/U.S. Privacy Shield certification.


Since August 1, 2016, U.S. companies have been able to certify for the EU-U.S. Privacy Shield ("Privacy Shield") for personal data transfers from the EU to the U.S.  Companies electing to certify under the Privacy Shield with the U.S. Department of Commerce will be recognized by the EU as providing an adequate level of protection for personal data transferred from the EU to the U.S. The Privacy Shield, which was adopted on July 12, 2016 by the European Commission, replaces the EU-U.S. Safe Harbor Framework, which was invalidated by the Court of Justice of the European Union ("CJEU") on October 6, 2015.  Certifying under the Privacy Shield requires U.S. entities to undertake certain steps and assessments to verify that they can comply with the Privacy Shield principles for the data that they transfer from the EU, such as having a Privacy Shield-compliant privacy policy, giving people choice about how their data will be used, implementing data protection controls, selecting a third party to adjudicate individual privacy complaints, and verifying that vendors and service providers they allow to access the data also follow equivalent principles.  Failure to comply with the principles can subject the companies to investigations and liability from the FTC (or Department of Transportation for entities regulated by that agency).

The DPA NRW raised the following issues that U.S. companies should consider:

1. Privacy Shield Alone May Not Be Sufficient For Transfers of Personal Data

Pursuant to the guidance, European companies considering transfers of personal data abroad must make a two-step assessment of data privacy compliance.

First, there must be a statutory basis for the transfer that is consistent with the local law of the concerned EU Member State, and as of May 2018, also with the EU General Data Protection Regulation. Second, the personal data held by EU companies should only be transferred to countries with an adequately high level of data protection comparable to the protection in the EU.

Privacy Shield, however, only addresses the latter. More specifically, the EU Commission's adequacy decision of July 12, 2016 held that U.S. companies certified under the Privacy Shield provide an adequate level of protection.

Practically, what does this mean? In addition to the Privacy Shield certification, U.S. companies may need to enter into a data processing agreement with their EU partner that satisfies the relevant EU Member State statutory provisions that apply to data processing agreements. One example of such statutory provisions is Section 11 of the German Federal Data Protection Act, which contains fairly detailed requirements on the content of data processing agreements. In particular, it requires both parties to agree on rather specific technical and organizational measures that the processor has implemented to protect the security of the data to be processed.

2. Data Controllers Transferring Personal Data under the Privacy Shield Have Additional Duties

Under the guidance, even if a U.S. company is Privacy Shield certified, data controllers are still responsible for independently verifying that data privacy protections are upheld. That means that before transferring personal data to a Privacy Shield certified U.S. company the data controllers must confirm that:

  • the Privacy Shield certification actually exists;
  • the Privacy Shield certification is up to date (the certification has to be renewed annually); and
  • the personal data the data controller intends to transfer is covered by the certification.

Thus, U.S. companies should expect that data controllers will ask the U.S. company questions regarding these points, and likely require the U.S. company to attest that it complies with its privacy obligations with respect to the concerned data subjects. For verification of the status of a Privacy Shield certification, the U.S. Department of Commerce keeps and updates a list of certified companies

For U.S. companies that are using the nine month grace period for compliance with the onward transfer principle of the Privacy Shield, the guidance indicates that the EU data controller should have the U.S. company confirm when it has completed compliance with the onward transfer principle. For U.S. companies, this will underscore the importance of reviewing, and where necessary updating, vendor and service provider contracts to ensure compliance with the Privacy Shield's onward transfer principle by, among other things, contractually restricting the vendor or service provider's data processing activities and requiring protection consistent with the Privacy Shield Principles.

3. Employee Data is Special

The Privacy Shield contains special provisions regarding transfers of employee data. If the Privacy Shield certification covers employee data, the company must agree to cooperate and comply with the EU DPAs with respect to such data. This means that the use of such data will still remain subject to EU law, and complaints from data subjects about the use of the data will be adjudicated by the EU DPAs.  In addition, the following principles must also be followed by the EU companies transferring employee data to the United States:

  • The Privacy Shield Principle of choice may be impacted by generally applicable regulations from EU Member States that do not allow for the continued processing of employee data for purposes other than the purpose for which they were collected. EU data controllers (e.g. in general, the employing entities) may further restrict U.S. companies from such uses and require contractual restrictions.
  • U.S. companies and/or the data transferring EU entity (employer) need to respect an employee's exercise of his/her right of choice against processing their personal data and must not disadvantage the employee in any way.
  • If specific protection for employee data is needed, appropriate measures have to be taken, e.g. pseudonymization or anonymization of data should be considered.

4. Privacy Shield May Not Be a Long Term Solution.

Despite raising various concerns about the EU/U.S. Privacy Shield, the DPA NRW agreed to give the program one year to address those concerns. After this initial year, the Article 29 Working Party plans to review whether its concerns have been addressed, and if the Privacy Shield is effective and functioning. Depending on the outcome of this annual assessment, the DPA NRW reserves the right to reevaluate and potentially stop data transfers under the Privacy Shield. Accordingly, U.S. companies relying on the Privacy Shield should carefully weigh the uncertainty it offers as a long term solution.

At the same time, the DPA NRW guidance points out that the outcome of this assessment will also have an impact on other methods of transatlantic data flows such as binding corporate rules and EU model contractual clauses which are currently likewise under scrutiny.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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